Panning for Paydirt in Gold

The Dow Industrials just hit their all-time high — boosting stocks like Google, PepsiCo, Hershey and Johnson & Johnson to record levels as well — just in time for the bull market to turn 4 years old this week.

Now that the markets are back to trading at pre-recession levels, we’ll leave it to the financial pundits to duke it out over whether this is a sign of better (or worse) things to come.

In the meantime, there’s a far-more-interesting opportunity opening up in gold and, particularly, the gold miners — which are hitting some historic numbers of their own … on the downside.

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Is it time to sell gold?

A recent survey by Bank of America shows investor sentiment on gold is at its lowest level since 2008.

It’s clear that investors are ditching the safety and security of the yellow metal for more-speculative returns in the market.

The last time the markets were this high was more than five years ago, back in October 2007. However, yesterday’s news came right after both the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) made new multi-year lows.

Gold futures gained for the first time in four sessions on Monday to close at $1,573.10 per troy ounce. This was after gold prices fell 5% in February, down for the fifth month in a row — the longest monthly losing streak for gold in 16 years.

The GDX and GDXJ are down 29% and 41% , respectively, while the Dow Industrials and S&P 500 are up more than 37% and 38%, respectively.

Although GDX and GDXJ gained in Tuesday’s trading, right now it seems that market sentiment favors at least a test of $1,525 an ounce, and perhaps a deeper breakdown. These gains tell me that letting go of “safe” assets like gold just because the markets are racing higher could be a big mistake.

After all, plenty of investors are still interested in the shiny yellow stuff. About 30,000 of us, in fact, gathered early this week in Toronto for the Prospectors & Developers Association of Canada conference to learn more about the very miners finding and producing the very gold you might end up buying.

Bottom line: Good companies will shine when the time is right. And your goal is to buy them cheap — not just price-wise, but also valuation-wise — no matter what the market looks like at the time.

That’s why I just sent my subscribers a recommendation to pick up a small-but-growing miner that’s making extraordinary strides for a company of its size, with one of the best CEOs in the industry.

I found a lot of terrific values at the conference, which I’ll tell you more about in the coming weeks. In the meantime, I would like to share a story in honor of my time here in Canada — about British Columbia’s gold rush — and what the mistakes of early miners can teach us about panning for paydirt today.

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$750 Gold?

Gold is about to make its biggest move in decades …

But it’s not the direction mainstream media wants you to think. In fact, it’s about to plummet to $750!

Canada’s great gold rush was sandwiched between the California Gold Rush of 1849 and the Klondike Gold Rush of 1889. Some people were involved in all three.

It’s a wild story that involves all the elements of a terrific action-adventure novel. Greed, bloodshed, lust, Native Americans, Chinese prospectors … this has it all.

The Native Americans knew about the gold long before the white man, of course. Heck, it was scattered around for the taking. And when it was buried, they could dig it out with iron spoons.

But then some white men found gold on a sandbank in the Fraser River in the 1850s, and the race for gold in British Columbia began in earnest.

The Hudson Bay Company first found the gold and succeeded at keeping it quiet for a while. Then Hudson Bay sent 800 ounces to San Francisco to be assayed. Whoops!

San Francisco, in that day — along with being a den of villainy, drunkenness and riff-raff — was filled with idle miners who had either blown their fortunes from the ‘49 gold rush or never found one. At news of the yellow metal, 25,000 men set out from San Francisco for the wilds of British Columbia.

Even before they got there, trouble broke out. The story goes that Indians came into a gold camp under a flag of truce and then slaughtered the unsuspecting miners while their backs were turned.

Modern-day historians doubt it was that cut-and-dried. But true or not, one thing the story provided was an excuse to kill the Native Americans who lived on ground the miners wanted to mine.

Greed, blood and gold have intertwined throughout history; British Columbia would prove to be no different.

Big Winners, Bigger Losers

On the miners came. More gold was found at a place called Cariboo — even richer than the first strike at Fraser. Thousands of men lined the rivers, panning for gold and digging up every hopeful inch with wild abandon.

Fortunes were made and usually lost. Sometimes they were lost with real style.

Big winners who became losers include Billy Barker, Michael Costin Brown and John “Cariboo” Cameron.

Cariboo Cameron gets my vote for the most-amazing mix of good and bad luck. He had already made a good strike in the California gold rush with his two brothers. They then heard about the strike on Fraser River, British Columbia’s longest river.

They headed north and hit it big again, returning with $20,000 between them — a sizeable sum.

John Cameron then married a beautiful woman, Margaret Sophia Groves, and she had a baby daughter just in time to take her to Cariboo, where Cameron wanted to try his luck.

The baby died on the trip.

Meanwhile, Cameron bought $2,000 worth of candles and sold them for $10,000 in the mine fields. That was a surer profit than he could have probably made with gold itself, and a reminder that you can do just as well in pick-and-shovel makers as gold miners.

A bitterly cold winter set in. Sophia had another baby stillborn and then Sophia died as well. Cameron became obsessed with the mine, working at it night and day.

Sure enough, he struck paydirt.

Cameron was rich, but he was also heartbroken. He wanted to take his wife home for burial, so he hired miners to work three shifts, 24/7, to get the gold out soon as possible. Then he took her home, pickled, in a tin coffin.

The story doesn’t end there. Cameron invested his money in everything from steamships to timber, and lost it all. He married a new wife, came back to the gold fields and met with no success at all. He died flat-broke.

But the rich Canadian-mining story reached far beyond North America.

Enter China

Other people were having luck in the gold fields, including the Chinese prospectors.

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Breaking News

The China Catastrophe

China is about to make an announcement to shake the world to its foundation — and destroy everything you’ve ever worked for. Russia is in on it, too.

Yes, even back in the 1850s, the Chinese were hot on the trail of Canadian resources. By 1863, there were some 4,000 in the Cariboo region. They were only allowed to work areas abandoned by the white miners.

But surprising their detractors, Chinese miners were both more-disciplined and -persistent. They invented the panning machines used to separate gold from mud. And they had some big strikes, even in the abandoned mines. It turns out that the good ol’ boys just weren’t looking hard enough.

4 Lessons for Striking Investment Gold

There are several key lessons to learn from the past:

Lesson #1. Greed may lead you to riches. But keeping them is another matter entirely. For that you need prudent management and financial planning.

Lesson #2. A disciplined, scientific approach to investing, carefully removing the wheat from the chaff, is equally important.

Lesson #3. You don’t always have to invest in the companies that extract the gold, the oil or other natural resources from the ground. You can do equally well with those that service the industry.

Lesson #4. Booms can end busts, and the boom I told you about did just that. British Columbia sank into an economic depression once the gold ran out.

But I think British Columbia’s current boom has a long way to go. Demand from India and China is still ramping up. Have you seen the price of gold? Have you seen the price of silver? They are rockets on the launch pad.

In the meantime, I just spent the day with …

A gold and silver miner whose mines are cash-generating machines.

A uranium company with no debt.

Plus, a company that just hired some of the top mining executives in the business to run its new project.

I can’t wait to tell you more about them. First, though, I’ll be sending my subscribers my best trading and investing ideas, complete with detailed buying instructions and timely alerts when it’s time to cash out and take profits.